I'm not a LL owner, but thought I'd offer how I've been making use of the hosted galleries (I was wondering the same thing as you).
If you use one of your allotted outlinks on you freesite to link back to a "hub"--a free site that is a link list containing all of your own freesites and galleries--you can link from there to your own "link list" made up of your hosted galleries. The more effort you put into your hub (I have a pic and site of the week, among other little things), the more likely surfers will be to start thinking of your hub as a regular destination for whatever niche you're emphasizing. My hub has slowly grown over the past year and a half to what is now some decent regular traffic--not on the level of a big LL, but it's been a steady climb.
One thing about content, too. I only use sponsor stuff when the sponsor is pretty small and/or unique, ie. I don't see the content being used much. If you make searching for content providers a regular part of your routine, you'll find more content than you think for a whole host of niches--and at very reasonable prices. I use mostly purchased content, seldom have much trouble getting sites/galleries listed because of content overuse, and have rarely paid a price for a photoset that would not be more than covered by a single sign-up.
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